GUIDE TO VAT FUNDING
in association with
Guide to VAT funding
Welcome to the Bridging & Commercial Magazine guide to VAT funding, in association with Vat Bridge
Contents 4-5 Introduction to VAT funding 6-7 The Vat Bridge process 8-11 Highlighted case studies 12-13 FAQs 14 Product info
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Guide to VAT funding
Introduction to VAT funding
W
hen looking to purchase a commercial property, the added 20% VAT due on the purchase can have quite a significant knock on your cashflow. It is no wonder, then, that those buying property are increasingly looking for funding to cover the shortfall in cash flow they face when paying the VAT on top of a property purchase. As a result, there are now a collection of specialist lenders who concentrate purely on VAT finance, offering loan advances of up to 100% of the VAT due, for sums ranging from a few thousand pounds into the millions. These lenders promise fast turnaround times, completing deals within seven days to make sure property purchases go ahead smoothly and efficiently. As an additional benefit, this service can also include the swift reclaim of the VAT from HMRC on the buyer’s behalf. As a result of these providers’ close connections with HMRC, this vastly reduces the amount of interest to pay.
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Guide to VAT funding
As well as specialist VAT lenders, a number of others have begun to offer VAT products as part of their product ranges. It has taken a while for lenders to catch on to this gap in the market. With the introduction of these products, we have seen how the demand for a service which can help with cashflow as well as the process of reclaiming VAT, has only increased over time. Experts predicted that the market would continue to grow and that it wouldn’t be long before it was a regular add-on offered by lenders—and this is what we have seen. The surge in VAT funding is down to a range of factors. First, the VAT product releases cash otherwise tied up with HMRC, which enhances deal capacity by using the advanced funds to exchange on additional acquisitions. Second, funding gaps during property transactions are becoming increasingly common
due to down-valuations and LTV caps. Finally, the advanced funds can be deployed immediately into developments, accelerating the project timescales. Meanwhile, the growth of the bridging sector has seen many lenders diversify their product ranges, and although the VAT funding market is increasing, there is still a relatively low number of players in the sector when compared with the wider specialist market. When it comes to services that offer VAT bridging loans for buyers and developers, there is still a gap to be filled and, as a result, it’s an area where many lenders can look to grow market share. Although news coverage of the market is on the up, it’s still not widely discussed and, as a result, it continues to go under the radar. The aim of this guide is to help you to understand more about the benefits of using VAT funding and how it can help during a property transaction.
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Guide to VAT funding
The Vat Bridge process Day 1
» Call comes in » Quote sent » Loan in principle sent
Day 2
» Commitment fee paid » Broker assists with gathering
documents » Legal counsel instructed on both sides
Day 3
» Negotiation starts with primary lender
Day 8-9
» Client sends us invoices for submitting to HMRC
» VAT return submitted** » Loan paid off
Day 7
» Loan advanced ***
» Contracts sent to client’s legal counsel
Day 4
» Documents received back » Due diligence starts* » Vat Bridge set as registered office » Vat Bridge elected as VAT agency » Bank accounts changed with HMRC
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Day 5/6
» Negotiation ends with primary lender » Signed contracts received
Guide to VAT funding
process
* The due diligence process is quick and simple. We require documents such as KYC, company documents and financial information to allow us to continue on to the next step of the deal. It is at this stage that the VAT Bridge legal team is instructed. ** VAT Bridge then focuses on retrieving the VAT from HMRC. We submit the VAT return and deal directly with HMRC to recover the funds, taking over the process on your behalf. Meanwhile, HMRC will have queries relating to the property. As VAT Bridge will have taken these details during the due dilligence stage, we are then in a position to accelerate the process. Our close connections with HMRC allow us to quickly and efficiently retrieve funds, reducing the amount of interest on your bridging loan. *** After we have completed our due dilligence, we advance you the funds required to cover the VAT costs of your property purchase. This allows you to bridge the gap until the funds are made available by HMRC at the refund stage.
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Guide to VAT funding
CASE STUDIES
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Guide to VAT funding
Study 1 Vat Bridge funded the VAT for a property purchase in Carnbroe, outside of Glasgow. The company purchased two pieces of land in Scotland, for the construction of apartments The funds were not required for the purchase itself, as the land had already been bought, however the company required the funds to help ease their cashflow. Vat Bridge was able to fund the £72,000 VAT costs after the £432,000 purchase, processing the funds in two and a half weeks. Ian Boots, managing director at Vat Bridge commented: “The client came to us wanting a VAT bridging loan for land that he had purchased in Scotland. During this deal VAT Bridge liaised daily with their solicitors in order to assist our client with his company cashflow.” As this deal was completed over a long distance, the consistency of communication was essential to smoothly managing the whole process. As part of VAT Bridge’s bespoke service, we are able to adapt to the different requirements of our clients, which in this case enabled the speedy delivery of funds following the property purchase.
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Guide to VAT funding
Study 2 Vat Bridge teamed up with Gladstone House Developments Ltd to help fund and expedite their purchase of a commercial property in Liverpool. The property that Gladstone was looking to purchase was valued at £1.83m. The property currently operates as an office block and is to be converted by Gladstone into apartments. Andrew Grabe, director at Gladstone, worked closely during the purchase with Ian Boots, managing director, and James Moore, senior account manager at Vat Bridge. Andrew Grabe commented that whilst dealing with Vat Bridge, the staff were especially efficient in gathering any required information, making the process much easier and smoother. As a result of the combined expertise and hard work of all parties, the outcome was a rapid and successful one for all involved, a great example of the rewards that can be gained when experienced, independent businesses work closely together. Ian commented: “Gladstone House was a joint effort between us, Adapt Finance (the broker) and Andrew. Through the joint efforts of all three parties, we have been able to successfully bring the deal to a close with funds being advanced to the client.” Working with Vat Bridge to secure the £305,000 VAT element of the £1.83m property purchase, Gladstone ensured that the process ran as efficiently as possible, leading to a successful outcome for all parties.
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Guide to VAT funding
Study 3 The client came through a broker, wanting funding for the VAT liabilities of the construction cost of a proposed hotel and commercial park on an ongoing basis. We were able to put a deal together whereby the client submitted their invoices to us on a monthly basis for submission to HMRC. Once the invoices went through a verification process, we were able to supply the client with 80% of the refund amount. The line of credit was run through our system, giving the client online access to their account and its position. It accelerated their ongoing VAT reclaims by two months, injecting a further 16% into their cashflow. All developers large and small are searching for the last penny to assist in the development process. The 12-month rolling facility allowed £300,000 to be reclaimed in the first month. This reclaim occurs each month and the client is constantly uploading purchase invoices to accelerate his VAT reclaims. The client stated: “This facility was easy to put in place and gives us that extra wiggle room each month. “The costs are reasonable, and it is accessible, transparent and easy to use. “We will be using this for all our development sites in the future.”
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Guide to VAT funding
FAQ 12
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Guide to VAT funding
Frequently asked questions WHAT SECURITY DO YOU TAKE?
To secure the VAT bridge loan we take a personal guarantee, debenture and second charge against the property. In addition to this – under certain circumstances – other securities may be required.
MY PRIMARY LENDER WILL NOT ALLOW FOR CERTAIN TERMS SUCH AS THE DEBENTURE AND A CHARGE AGAINST THE PROPERTY. DOES THIS MEAN THAT I CANNOT GET A LOAN? We have found that different lenders have different terms and conditions. In situations like this we are happy to negotiate with the senior lender in order to reach a ‘middle ground’, which is usually in the form of an adapted intercreditor deed.
HOW QUICKLY CAN I HAVE THE MONEY IN MY ACCOUNT?
Typically, the process up to the advancement of the loan takes 7-10 working days. Although, these times can vary depending on the complexity of the deal and how quickly you can get the documents back to us.
HOW QUICKLY DO YOU CLAIM IT BACK?
Vat Bridge will retain 90 days’ interest during the loan process. Although, we find that we can reclaim within two or even one month* in some rare cases. The interest will then be calculated and the excess refunded. *deals are subject to 65 days’ minimum interest fee period.
IS IT QUICKER IF WE DO OUR RETURNS MONTHLY?
When Vat Bridge adds the bank account to your HMRC account, we automatically change over to a monthly return period. This will allow us to claim back the money that much quicker which will save the client on the interest.
IS THERE ALWAYS AN INSPECTION?
Usually there is an inspection on anything out of the ordinary once the return has been submitted to HMRC. Although, we have found that this can usually be as easy as answering a few questions. As part of the process, Vat Bridge will intercept these queries as we find that we are best placed to answer them and liaise with HRMC directly, taking this pressure off the client.
DO I NEED A SOLICITOR TO BE INVOLVED WITH THE DEAL?
Vat Bridge would always recommend that a solicitor is involved in the process.The only reason that we do insist on one is to issue ‘independent legal advice’ and to witness the signing of the personal guarantee. This is to ensure that the personal guarantee ‘sticks’.
WHAT IS THE MINIMUM AMOUNT THAT VAT BRIDGE WILL FUND?
Vat Bridge will usually accept loans of £50,000 with no upper limit. For loans of less then £50,000 special terms may apply.
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Guide to VAT funding
Vat Bridge+ Similar to our main product, Vat Bridge+ offers 100% funding for the VAT due on your commercial property purchases in the UK. With this product, there are two loans: the first to fund the VAT element of the property purchase, and the second to fund the fee and interest we charge. This means there are absolutely no upfront costs, so you can keep your cashflow steady and use your extra time and money for new potential purchases, or to simply enjoy your new commercial property! We offer 100% of the funding (plus fees) with approvals within 24 hours. We are also able to complete deals within 5-7 days. VAT Bridge will also take over the VAT recovery process, lifting yet another weight off your shoulders and giving you the resources to get on with doing what you do best—running your business.
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Guide to VAT funding
Our DF+ service allows developers like you to accelerate your VAT reclaims by up to two months or longer, improving your cash flow and reducing the administration of VAT. In all cases, for developers of new-build houses and some refurbishments, you can reclaim all VAT on your construction costs. There are no sales, as they are zero-rated, and you are always in a constant reclaim situation. DF+ allows you to borrow up to 80% of submitted reclaims and 80% of the VAT element of received purchase invoices. These invoices are submitted to us on a schedule as and when they are received, and you can draw down on these amounts when you choose. This has the effect of advancing up to two months’ reclaims in advance of the time it would normally be received. Vat Bridge takes over the reclaim process by becoming the VAT agent and having our bank details nominated at HMRC. If you were to invest in this product, you would enter into a 12-month rolling facility with a three-month notice period. Indicative costs are as follows, but are dependent on the deal size:
products
DF+
Schedule submission Fee:
» Up to 3% of VAT element for submitted VAT returns » Up to 5% of invoices presented pre-submission Interest: 10% over Barclays base rate
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